Fear of Unintended Consequences



Ever wonder why your CEO charters an exhaustive study of enterprise-wide sourcing potential, corralling resources to develop a business case that encompasses virtually every business function? Spends hours reviewing and posing questions? Gives you the kudos you rightfully deserve for pulling together a cogent assessment and compelling plan that saves the company millions of dollars/pounds/Euros with a rapid return on investment? Then goes dark for weeks, finally coming up for air to say “Great job, but it’s up to the business lines/functions to decide what they want to do.”

It’s every sourcing leader’s greatest nightmare. Long hours, good work, and  what’s most important, a passion for making a difference go into the development of a compelling business case, then what seems a quick dismissal and back to business as usual, supporting the CIO to consolidate IT vendors. For a brief moment, it looked like the organization was ready to implement enterprise-wide change in the service delivery model, finding opportunities to create business value by looking in every company nook and cranny.

But truth be told, if the lead stakeholder has no appetite, radical change is virtually impossible, with even incremental change difficult to achieve under the banner of corporate imperative.

Why do CEOs turn tail when it’s time to implement?

The CEO did not deliberately set out to invest resources in sourcing evaluation, and then decide to chuck it all away. Give him or her credit for the right intention; s/he is most likely familiar with the benefits of alternative services delivery, and wanted to weight the cost/benefit—as any good CEO should. But challenges surfaced during the exercise; when the top man was able to get a better picture of the business value created and its attendant costs, implementation obstacles, potential for failure and personal risk. And s/he hesitated. Call it the fear of unintended consequences.

Spirit is willing but the flesh is weak

Most CEOs “get it.”  They read the headlines and see the big picture, but the exercise of assessing the potential and developing the strategy brought home the fact that enterprise-wide sourcing change is tantamount to very heavy lifting. Most importantly, unlike other corporate initiatives which have predictable outcomes, the potential for and extent of failure is not clear cut. There are just too many variables—speed, scope, make or buy, solution, stakeholder support, just to name a few—for comfort. Should the CEO put his personal credibility on the line for an outcome that could backfire, when other leaders—by function or business line—can take the risk and hypothetically achieve, in aggregate, the same outcome? Naturally s/he’s going to think a long time before making a decision.

Lower hanging fruit

It’s much easier and faster to rationalize a supply chain or undertake an initiative to change employee benefits. Enterprise-wide sourcing can be  viewed by the CEO as an initiative that is too big to control; too complex to demonstrate quick wins; too long in duration to be perceived as a game changer for the organization; and too fraught with unknowns to be a sure bet.

Too much personal risk

Because of its scope and complexity, not to mention that it constitutes a major stake in the ground relative to his management purview, few CEOs know what to do if an enterprise-wide sourcing initiative fails. Chances are s/he’s never previously sponsored such a program. So concerns such as what might be the extent of the collateral damage, how can the organization be put back to the way it was, or who is ultimately responsible become very real impediments to moving forward.

Is your CEO ready to champion?

Think about the profile of CEOs who delivered radical business change, and the authors of all those vaunted business books come to mind—Jack Welch, Lee Iacocca, and Larry Bossidy. What did each of them have in common? Certainly vision, but also the drive to get their leaders to implement that vision for them. Two of them, Welch and Bossidy, actually pushed their teams into adopting enterprise-wide shared services models which are held up as industry exemplars.

Not all CEOs are cut out of the same cloth. Given complexity and risk, certain CEO profiles may not be candidates for aggressive sponsorship of enterprise-wide sourcing initiatives. It is critical to understand the context in which they are working, and their own personal agendas when evaluating his ability to champion the cause. Therefore, consider whether your CEO is (or has):

Riding High

Timing is everything. If the CEO is not positioned in as a savior to cut costs and reposition the company, but as a strategist who will ramp up growth, chances are that globalization of the business model is not high on his agenda. Few organizations implement widespread business model changes when times are good, and the potential for revenue growth eclipses savings from the sweat and blood of sourcing implementation.

Moved up through the ranks

There may be a direct correlation between those bosses who champion global sourcing programs, and those who back off, depending upon whether they were brought in from the outside, or rose up through the ranks.  Typically, internal executives who were tapped for the corner office have formed strong coalitions with other executives which have helped them get things done over the years. The top guy may think compelling his buddy the CFO or divisional COO to make a change in model is tantamount to a taking, and will destroy the delicate ecosystem of his management team. Leading a conservative company If the organization is closely held, mutual or family owned, it often evokes age and tradition (‘since 1789,” “ten generations of excellence”) connoting stability as part of its brand promise. In effect, the compact with employees and customers is characterized by such implicit messages as “no change in the face of change,”  “we are the biggest local benefactor,” or employer as patriarch. These organizations often serve national rather than global markets, and evolve slowly, working on the premise that if it’s not broke, don’t fix it. The CEO may perceive he should not rock to boat.

Heading a business line-driven organization

In some organizations, the power to change is closely held in the business lines while the corporate center develops strategy and directs policies and procedures which affect all, such as human resources or risk. The CEO may be aware that s/he cannot dictate to the business line leaders, or that expending political capital on efficiency, standardization and harmonization within the units is a suboptimal exercise.

Had little time in grade

New kids on the block may not believe they have the support required to foster radical change, especially if they were appointed to continue their predecessor’s a business as usual scenario.

Has other agenda items on the horizon

Mergers, acquisitions, new product launches or market entries are generally perceived as game changers, while moving to a new business model does not have quite the same cachet, or market approbation. Often global sourcing leaders are unaware of other strategic initiatives that will delay or derail enterprise-wide sourcing initiatives.

Obsessed about legacy

“I entered new markets as a result of a new international strategy and product development, resulting in compound growth of 40 percent” is much more compelling than “I consolidated finance and accounting and moved the whole lot to India in order to increase efficiency and improve execution.”  Improved services delivery is not a personal strategic differentiator on a resume, or the topic of a business book or popular on the speaking circuit.

How should the global sourcing leader respond?

Let’s face it—some CEOs will only flirt with the concept of enterprise-wide sourcing. However, if conditions are ripe, the first rejection can serve to build a strong foundation for sourcing change and eventual adoption of enterprise-wide sourcing. Stepping back, benefit to the enterprise-wide sourcing cause does accrue from the CEO’s inability to immediately champion radical sourcing change. Even in the face of initial rejection, savvy sourcing leaders:

Gain credibility

If the analysis and the approach are comprehensive well-thought out, based on fact, and provided a fresh, new look at the organization, the sourcing leader will naturally gain credibility amongst management and peers. In a best-case scenario, the sourcing leader can use that credibility to refine the case for enterprise-wide sourcing over time; in any event, the favorable exposure to other corporate leaders can put the leader on the talent radar screen, opening up opportunities in other functions such as corporate strategy or operations.

Suss out stakeholder positioning Lack of an immediate mandate can be viewed as a helpful delay rather than a no. The exercise of depicting the art of the possible smokes out reactions which allows leadership to group business owners in three buckets—those who will champion the change, those who will reject the change, and those who remain undecided.

Anticipate the best pace of change for the organization

If conducted comprehensively, the planning exercise acknowledges the organization’s usual change trajectory, and identifies a full range of strategic, complementary and competing initiatives that will have a bearing upon enterprise-wide sourcing implementation. For example, lessons learned during the exercise dimension what preconditions business lines must have to adopt change, or whether a strategic initiative will drive the company’s markets to become more global, making it more comfortable with locating operations offshore.

Identify another C-suite champion

Perhaps there is another, bolder champion waiting in the wings, such as the CIO, CFO or COO. It’s not uncommon for a CEO to delegate an internal change program to another member of his executive team, perhaps to his number two who wants to make a mark on the company, or someone closer to the ins and outs of operations. If that champion has the full backing of the CEO, and the power to influence, s/he may be the right leader for enterprise-wide sourcing.

Back to the CEO

So the exercise took long nights, some political capital, and spent more than a few providers’ business development dollars, all seemingly for naught.  Was it really within the realm of the possible that s/he’d read a compelling deck, spend a few hours grilling the team, then stand up and shout “Outsource the entire enterprise! Move all European accounting functions to Bulgaria!” from the parapets?

Expecting such a response is more than a bit disingenuous.  Few business decisions made immediately after reviewing a PowerPoint for the first time, especially one that affects every corner of the organization and requires that a whole host of stakeholders are firmly on board for success.

The CEO is no fool. Most likely he’s the CEO because he has demonstrated ability to build consensus, coaching a winning team. Perhaps he intuitively knows he cannot change the business model by fiat, but must get others to buy into it, which takes time and friendly persuasion. Even “Neutron Jack” Welch understood the power of getting his team on board when he pushed his famous sourcing strategy.

So consider the development of a sourcing strategy as a necessary first step to put the cause on the corporate agenda. The proverbial stake is now on the ground, dimensioning the benefits and scope of change. The CEO has seen it; s/he “gets” it. Now it’s up to him to determine whether s/he can develop an appetite for adoption among his leadership group.

Here is where the next stage of the global sourcing exercise comes into play. It’s time  to help the CEO raise the banner for enterprise-wide sourcing by creating conditions where adaptive behavior can take place, by:

Educating

First, don’t make the assumption that the CEO and his team know enough about the power and pitfalls of enterprise-wide sourcing. While the draft business case may be compelling, the key stakeholders come with a different understanding of the process and benefits. Ensuring that all enter the debate working off a similar knowledge base is critical; this can be achieved by sharing case studies and industry thought leadership, arranging for experts to address the leadership team, or facilitating industry peer to peer discussions with those who have benefited from pursuing enterprise-wide sourcing.

Marketing

The core of sourcing leadership is to advocate for a change in business model. While we all would like to think that the facts speak for themselves, few initiatives requiring broad-based stakeholder support are realized without employing classic marketing techniques. Identify opportunities to link sourcing benefits into other corporate initiatives. Endeavor to help the CEO keep the sourcing door open in messages to his executive team. Announce wins in smaller sourcing programs through newsletters. Or organize industrial tourism to centers in prime offshore locations so that stakeholders see the operations first hand.

Listening

Take a page out of the stakeholder change manual and identify champions amongst the CEO’s management team. Spend time with them understanding their needs, wants, fears and challenges, then support them with evidence that makes them more comfortable implementing shared services or outsourcing. If they bite the sourcing apple, view them as a demonstration project, developing a full suite of enabling tools to facilitate sourcing success.

Being patient

It’s difficult to take on the role of sourcing leader only to find that the appetite to adopt alternate business models is virtually nonexistent at a given point in time. In some cases, the organization will not embrace change, and any efforts to that effect will be fruitless and frustrating. But sticking with it is a necessity; empirically, on average, it takes two or more years for an organization to get on board—enterprise-wide sourcing initiatives at vaunted examples Procter & Gamble and Aviva were several years in the making, and took on a range of forms before first implementation.

Suffice it to say, if the CEO is not on board, or he has not empowered and endorsed a C-suite proxy, enterprise-wide sourcing change is nigh on impossible to accomplish. Executives, business line managers and process leaders can all sense lukewarm support, and, best case, will only half heartedly embrace the change. Most corporate leaders want their legacy to be growth through brand, products and markets; although necessary, what they may see as tinkering with the business model to change the company’s cost base does not have the same appeal.

The role of the sourcing leader is fundamentally that of forging a line of sight into the process, challenges and benefits of enterprise-wide change.  Successful change is driven from the top; making the boss comfortable that all consequences are intended is a critical first step.

The author appreciates the fortitude of the many capable sourcing leaders who push for enterprise-wide change. Keep the faith.

An abbreviated version of this topic was first posted in the Shared Services and Outsourcing Network’s “State of Change” column. To refer to it, please visit http://www.ssonetwork.com/stateofchange.

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